Value Added Activities

A business organization is full of activities. Some are said to be value adding activities, while others are non value adding activities.

All of us agree that business is started by an entrepreneur with the prime intention to make money We also know that losses saved means profit earned.

While, value adding activities generate profits, non value activities drain our funds and contribute to losses.

We therefore need understand, whether there is any mechanism to visualize, identify and eliminate non value adding activities.

If, the activities ought to be carried out to fulfil organizational objectives, then the very objectives can provide the basis to determine whether an activity is value adding or non value adding activity.

A two way test

If an employee responsible for taking decisions and carrying out activities scrutinizes his daily activities and asks himself two questions –
1. Whether my activity brings profit to the organization? and
2. Whether my activity is oriented towards customer satisfaction – be it immediate or external customer?

Obviously, if the answer to both the questions is yes, then the activities are in line with organizational objectives and can be termed as value adding activities. Rest of the activities can be termed as non value adding activities.

Naturally, time, manpower, material, machine hours, space, energy, and efforts that are utilized for non value adding activities amounts to waste of money and contribute to losses or reduction in profits.

If through systematic efforts we can eliminate non value adding activities and replace them with value adding activities, we can surely improve our profits (bottom line) to that effect.

Activities can also be classified as –

1. Reactive activities – Non value adding activities
2. Proactive activities – Value adding activities

• Reactive activities are carried out in response to a problem that has occurred and reported. Here the damage is already done. To do something, only when asked to do is a reactive response.

Reaction has no direction.

Many a times it creates a chaos and indeed losses.

It drains our energy. Proactive activities are carried out with planning.

Here the purpose is well understood, the expected outcome is well defined and the expenses are budgeted.

It adds to profit and improves quality.

Starting work without being told by taking initiative is a proactive activity

Activities must have a purpose

The outcome of an activity be it a product or service must either be-

1. An input to the next process (immediate customer) or
2. Received by the customer.

An organization is a network of processes and in turn activities. Output from one activity must be input to other activities.

Any activity whose outcome is not an input to next process, does not serve any purpose. It is a non value adding activity. If activity like decision making is not based on factual data or certain test results are based on wrong methods, it does not serve any purpose.

Purpose may be modified and upgraded to add value to activity.

Every activity must have a purpose. Purpose can differ from person to person based on his approach.
For example purpose of a manager taking a round could be –

He gets bored sitting at his place
To attend problem that has been reported
To see whether workers are working and not idling
To see whether the processes are working smoothly
To ensure that processes are working within tolerance limit of parameters
To identify abnormalities with the intention to solve the problem
To verify whether the actions taken earlier are effective
To find areas for improvement
To challenge the process with the intention to find alternative better method or to eliminate part of the process,
To find where automation can be done, energy can be saved and so on - - -

A manager can apply a two way test and find out for himself, the status of his activity. A manager can upgrade the purpose of his round taking activity and make it more value adding.

Value addition can now be redefined as –

Activities that save our resources and simultaneously improve quality of the product or service, by systematically improving methods and resources,
through involvement of employees.

Obviously each activity needs to be analyzed for the possibilities to modify or replace with more effective and efficient activities.

Since employees carry out various activities, organizations need to take special efforts to train them.

Employees need to be trained for using proven performance improvement techniques such as lean manufacturing techniques.

On the other hand, employees should grab such opportunities and learn new techniques to improve their own value.

When an employee enhances his value, he contributes to profit and thereby he is entitled to earn more appreciation in the form of increments, rewards and promotion.

If he does not get appreciation in the same organization, he will get it in other organization, because he deserves it.

When organization have an army of more competent people, the collective contribution is fantastic.

Yashodhan Kanade

Lean Manufacturing consultant
E mail – [email protected]
Mobile-91 9822470912

Value Added Activities

Objectives versus goals

A business organization has three main objectives –